Working with a new client today, it struck me that a lot of people assume setting up a new bank account for a business is a hassle. So, I figured it was important to take a minute to jump out here and say, “It’s not so hard to do.”
Even if you haven’t yet gone through all the legalities of creating an LLC, or a corporation, and you are operating as a “sole proprietor” (or lone professional), you can still set up a checking account for your business.
And I really, really suggest that you do it.
There are three main reasons to do this early on in your business, even before you’re making money.
FIRST – TAX ADVANTAGE
When starting a business, it’s likely that you’re going to have a lot of expense and very little income for a while. So, you want to capture every single expense that relates to that business, and not forget any.
For example, if you go out and have a lunch with a friend in February, and you’re talking about your business – that’s a deductible business expense! If this is paid on a credit card that’s personal, or from a personal checking account, there’s a good chance that by April of next year (when you’re filing taxes) you’ll forget that lunch ever happened! And – boom – you’ve lost a tax deduction that would reduce your final tax bill.
SECOND – ACCESS TO CREDIT
When you set up a business bank account, it comes with the likelihood that you can also set up a credit card for the business. So, this way you could get access to additional credit; and, see the FIRST point above – right off the bat you have one clear report of expenses that are strictly business-related.
THIRD – GROWN UP BUSINESS
And the third reason is really where the rubber meets the road. Yes, taxes are important and bookkeeping for taxes is critical, but taxes is not the be-all and end-all of good accounting.
The real value from accounting and bookkeeping is in its ability to provide you (the owner) a clear and easy-to-understand picture of what’s going on in your business. And, with a little tweak or two:
- You can know how much you’re spending and how much you’re making; and
- You can know all of this at whatever level of detail makes the most sense for YOU (not just what makes sense for the tax accountant)
One of those “tweaks” that sets you up for accounting that serves YOU is setting up a checking account very early on in your business.
A clear look month after month at how much you’re spending on the business will prevent a surprise at the end of the year. You won’t have to wonder where your money is going. Instead, you’ll very clearly know and understand, “Hey I put $5,000 into my business, that’s why it’s not in my personal checking account. It’s in my business.”
Not only does separating your personal and business finances keep you well-informed about what’s going on in your business, but it also serves to reinforce what you really are.
You are an entrepreneur! You have chosen to start a business! Congratulations! Own it and be proud of it. You deserve to have your set-up remind you of your drive and success at doing what 99% of the population never does.
So, go ahead and set up that business checking account. It’s not hard. It will take about an hour. Set it up and run everything through it; get the tax deductions; get the extra credit card; and set yourself up like the business owner that you are.